Aeriance Investments to raise €1b for debt funds next year

Luxembourg-based investment firm Aeriance Investments is gearing up for a mammoth €1 bn fundraising drive next year, as it seeks to deepen its footprint in the European debt space, Aeriance’s incoming chief executive, Harin Thaker, told PropertyEU.

‘We would like to raise €1 bn for our two new funds, Aeriance Mezzanine Real Estate Debt Fund 3 (AMREF 3) and Opportunistic Real Estate Loan Fund 2 (OREL 2), over the next year,’ said Thaker, who joined Aeriance from pbb Deutsche Pfandbriefbank in October. ‘We’d like to have the first closing for both funds by the end of the first quarter next year, and ideally we would like to be making our first investment soon after.’

Both new funds have a target size of around €500 mln. AMREF 3 is a closed-end fund focusing on mezzanine debt across Europe. It will also invest in publically traded debt, such as CMBS. It has a target dividend of around 6% per year. OREL 2 is a closed-end fund focusing on both senior and junior debt backed by high-end residential properties in London’s ‘golden’ postcodes such as Mayfair, Belgravia and Notting Hill. It is the follow-on fund to Aeriance’s OREL 1, launched in 2011, which delivered distributions of 9% per year after the initial investment period with an overall expected gross IRR of 14%, according to Aeriance.

There has a been a surge in non-traditional lenders launching debt funds this year, spurred by a hike in demand on the part of institutional investors: ‘We feel that there are still opportunities in the market for debt funds, especially now that institutional investors have finally come to terms with debt fund investments as an asset class. They have become popular because they offer stable returns of around 8% to 9% but are low-risk,’ Thaker said.

Thaker estimates that it will take Aeriance between 18 and 24 months to fully invest both funds, which won’t be geared at the fund level. So far, investor interest has come from a broad range of investors, including pension funds, sovereign wealth funds, HNWIs in Europe, the Middle East and elsewhere.

Non-traditional lenders have poured into the European debt space this year, with debt funds quickly becoming the new buzzword in real estate circles. Indeed, investor interest in debt has become so strong that DTZ has estimated that there will be around €130 bn of new lending capacity from non-bank lenders between 2013 and 2015 across Europe, propelling key markets such as Germany, France and the UK towards a lending surplus. Debt funds and insurance companies are among the new players entering the fray, keen to take advantage of unprecedented demand on the part of institutional investors to find new real estate asset classes in which to invest.

AMREF 3 will initially focus on the UK, France and Germany but will quickly extend to the Nordic region, Thaker said. ‘For now, we’ll avoid markets that are not performing well, such as Spain, southern Italy, Portugal and Ireland. Typically, we will underwrite loans of up to €50 mln although we are also open to club deals on big ticket loans, especially if the deal concerns an underlying operating business, such as a hotel,’ he added.

Aeriance’s OREL 2 fund offers construction loans for bridge finance to convert houses or offices into apartments, or to convert properties that were once residences and have since been converted into another use back into residences. ‘We’ll fund the construction cost, much like a senior construction loan,’ Thaker said.

Further fund launches could be on the cards, he said: ‘We’re pretty opportunistic, so we can react quickly to market changes. The market has changed dramatically in the past year, with annual returns falling from 9-12% a year ago to 8-9% today. However, if we identify a unique opportunity, we can immediately launch a fund to take advantage of it,’ he explained.

So far this year, Aeriance has underwritten €200 mln of mezzanine loans across its existing funds, including a £25 mln mezzanine loan for a 355,000 sq. ft. office in Manchester, in the UK, for its AMREF 2 fund. It also underwrote a £14 mln senior loan for the development of a 78-room hotel in London for its AMREF 1 fund.

COMPANY PROFILE: Aeriance Investments
Aeriance Investments is a Luxembourg-based investment firm specialising in real estate debt. The group currently has four debt funds: Opportunistic Real Estate Loan Fund 1 &2, Aeriance Mezzanine Real Estate Debt Fund 3 and Aeriance’s ASTREL fund. Combined, the funds have underwritten €1.4 bn of loans over the past five years and currently have almost €600 mln of AUM. The group’s AMREF funds invest primarily in debt exposures of approximately 60% to 80% LTV backed by high quality real estate assets. The funds expect to distribute 5% to 6% per annum in dividend income. Aeriance’s ASTREL fund has similar investment criteria to its AMREF funds, albeit with a lower exposure in the capital structure, normally not higher than 60% LTV. In addition, Aeriance invests in residential real estate loans in ‘golden’ London postcodes, such as Knightsbridge and Belgravia. The exposures are conservative and limited to 65% LTV. The firm is regulated by the Commission de Surveillance du Secteur Financier (CSSF).

Sara Seddon Kilbinger
Correspondent Germany